Wen presses Saudi for oil sector access

Riyadh, January 15, 2012

Chinese Premier Wen Jiabao pressed Saudi Arabia to open its huge oil and gas resources to expanded Chinese investment, reports said against a backdrop of growing tension over Iran and worries over its crude exports to the Asian power.

Saudi Arabia is China's biggest source of imported oil, and securing energy security was high on Wen's agenda in Riyadh, in part reflecting concerns about how nuclear tensions and sanctions could unsettle ties with Iran.

"China and Saudi Arabia are both in important stages of development, and there are broad prospects for enhancing cooperation," Wen on Saturday told Prince Nayef, who is a senior member of the Saudi government, according to Xinhua.

"Both sides must strive together to expand trade and cooperation, upstream and downstream, in crude oil and natural gas," said Wen, referring to access to extracting oil and gas and then processing the them.

The Xinhua report made no mention of any discussion of Iran, whose oil exports to China face pressure from new US sanctions. The US sanctions threat is a particular worry for China, the biggest buyer of Iranian oil. Only Saudi Arabia and Angola sell it more crude.

"Beijing is concerned with the potential response to Iranian bellicose statements and with the spike in oil prices that would ensue from greater turmoil in Syria and Iran," Michal Meidan, an analyst in London with the Eurasia Group who studies Chinese energy investment and policy, said in an emailed research note. Late on Saturday, the Chinese Foreign Ministry denounced U.S. punishment of China's state-run Zhuhai Zhenrong Corp.

On Thursday, the Obama administration invoked US law to sanction Zhuhai Zhenrong Corp, which it said was Iran's largest supplier of refined petroleum products.

"Imposing sanctions on a Chinese company based on a domestic (US) law is totally unreasonable, and does not conform to the spirit or content of UN Security Council resolutions about the Iran nuclear issue," the Chinese Foreign Ministry spokesman Liu Weimin said in a statement issued on the ministry's website.

"China expresses its strong dissatisfaction and adamant opposition," said Liu.

The Obama administration said its sanctions against the Chinese company and two other firms are part of a broadening effort to target Iran's energy sector and press Tehran to curb in its nuclear ambitions, which Western governments say appear aimed at developing the means to make atomic weapons.

China cut oil imports from Iran in January and February in a commercial dispute over contract terms, and has been looking for alternative supplies.

Yet China is unlikely to dramatically boost crude imports from Saudi Arabia, even with the Iranian worries, said Meidan, the analyst with the Eurasia Group.

"In the likely event that Iran will offer discounted oil, Chinese traders will buy more Iranian barrels and could consequently reduce their Saudi imports," she said. "Wen will therefore need to convey both commercial and diplomatic realities to Saudi Arabia, China's number one source of crude imports, and ensure that bilateral ties remain on steady footing."

Wen also said his government wants "strong and reputable" Chinese companies to invest in Saudi Arabia's ports, railways and infrastructure, the Chinese Xinhua news agency reported.

China and Saudi Arabia should keep deepening cooperation "in the face of changeable and complicated regional and international trends," he said, according to Xinhua.

Crown Prince Nayef is King Abdullah's half brother and became heir to the throne in October. The Xinhua report paraphrased the prince as saying that Saudi Arabia is willing to expand cooperation in energy and infrastructure.

On Saturday, the state-run Saudi oil giant Aramco and Chinese companies finalized an initial agreement signed last year to develop a 400,000 barrel per day (bpd) refinery in Yanbu, on the kingdom's Red Sea coast.

Aramco will hold a 62.5 percent stake in the joint venture formed to develop Yanbu Aramco Sinopec Refining Co (Yasref), and Sinopec will own the rest. - Reuters